April 22 (Bloomberg) -- China’s bad-loan ratio rose
“significantly” in the first quarter, increasing risks for the
nation’s banking industry, according to the nation’s largest
manager of soured debt.

The business environment this year has been “grim and
complicated” as lenders face pressures on asset quality,
liquidity and lending margins, China Huarong Asset Management
Co. Chairman Lai Xiaomin said during an internal meeting on
April 15, according to a statement today on the website of the
Beijing-based company.

China’s slowing economy has made it tougher for borrowers
to repay debt, driving up banks’ sour loans for a ninth straight
quarter as of December to the highest level since 2008, data
from the banking regulator show. New nonperforming loans
amounted to more than 60 billion yuan ($9.6 billion) in the
first two months of this year, compared with 100 billion yuan
for all of 2013, China Business News reported on April 9, citing
people it didn’t identify.

“The economic indicators we’ve seen so far are quite
disappointing and repayment risks are rising across sectors from
property to small businesses due to weak demand,” Rainy Yuan, a
Shanghai-based analyst at Masterlink Securities Corp., said by
phone. “Banks will be hit in such an operating environment but
managers of bad assets like Huarong and China Cinda Asset
Management Co. stand to benefit” because they can accumulate
more sour loans, she said.

Slowing Growth

Huarong’s profit in the three months to March climbed 75
percent to 5.1 billion yuan from a year earlier, surpassing its
target, Lai said.

China’s four largest lenders are due to report first-quarter earnings starting April 24. Shares of Industrial &
Commercial Bank of China Ltd. and its three closest rivals are
trading near record-low valuations in Hong Kong and Shanghai as
slower economic growth and rising bad debts squeeze
profitability.

ICBC shares in Hong Kong lost 0.2 percent to HK$4.80 as of
2:40 p.m. local time, while China Construction Bank Corp., Bank
of China Ltd. and Agricultural Bank of China Ltd. lost at least
0.9 percent. ICBC, CCB and Agricultural Bank slumped more than 7
percent this year, compared with the benchmark Hang Seng Index’s
2.5 percent drop.

The ratio of sour loans to total lending at the 10 largest
publicly traded banks in China rose 6 basis points, or 0.06
percentage points, last year to 0.99 percent, according to a
statement from PricewaterhouseCoopers LLP today.

Shares of Cinda Asset, the first of the nation’s four
state-owned bad-loan managers to go public, rose 0.7 percent to
HK$4.26. The stock jumped 19 percent since it first started
trading in Hong Kong in December.

Huarong, which was restructured into a commercial company
in October 2012, is planning to sell shares to strategic
investors by June before it begins preparing later this year for
an initial public offering, said Lai, a former spokesman at the
China Banking Regulatory Commission.

Huarong is seeking to sell as much as 20 percent of its
shares to investors as it aims for a Hong Kong IPO in the first
half of 2015, Lai said on March 5. KKR & Co. and BlackRock Inc.
are among investors in talks to buy a stake in Huarong, Reuters
reported in January.

China set up Huarong, Cinda and two other national asset
management companies in 1999 to clean up a financial system on
the brink of bankruptcy after decades of government-directed
lending to unprofitable enterprises.